February 17, 2021
OECD releases 10th batch of peer review reports on BEPS Action 14 related to improving dispute resolution
On 16 February 2021, the Organisation for Economic Co-operation and Development (OECD) released the 10th batch of peer review reports, which relate to the implementation by Aruba, Bahrain, Barbados, Gibraltar, Greenland, Kazakhstan, Oman, Qatar, Saint Kitts and Nevis, Thailand, Trinidad and Tobago, United Arab Emirates (UAE), and Vietnam of the Base Erosion and Profit Shifting (BEPS) minimum standard on Action 14 (Making Dispute Resolution Mechanisms More Effective).1
Overall, the reports conclude that most of the assessed jurisdictions meet almost all or the majority of the elements of the Action 14 minimum standard, with the exception of Kazakhstan and Vietnam which meet less than half of the elements of the Action 14 minimum standard. In the next stage of the peer review process, each jurisdiction's efforts to address any shortcomings identified in this Stage 1 peer review report will be monitored.
In October 2015, the OECD released the final reports on all 15 action points of the BEPS Action Plan.2 The recommendations made in the reports range from new minimum standards to reinforced international standards, common approaches to facilitate the convergence of national practices and guidance drawing on best practices.
Minimum standards are the BEPS recommendations that all members of the Inclusive Framework on BEPS have committed to implement, and refer to some of the elements of Action 5 on harmful tax practices, Action 6 on treaty abuse, Action 13 on transfer pricing documentation and Country-by-Country reporting and Action 14 on dispute resolution.
The minimum standards are all subject to peer review processes. The mechanics of the peer review process were not included as part of the final reports on these Actions. Instead, at the time of the release of the BEPS final reports, the OECD indicated that it would issue peer review documents on these Actions at a later stage, providing the terms of reference and the methodology by which the peer reviews would be conducted.
In October 2016, the OECD released the peer review documents (i.e., the Terms of Reference and Assessment Methodology) on Action 14.3 The Terms of Reference translated the Action 14 minimum standard into 21 elements and the best practices into 12 items. The Assessment Methodology provided procedures for undertaking a peer review and monitoring in two stages. In Stage 1, a review is conducted of how a BEPS Inclusive Framework member implements the minimum standard based on its legal framework for Mutual Agreement Procedures (MAP) and how it applies the framework in practice. In Stage 2, a review is conducted of the measures the BEPS Inclusive Framework member takes to address any shortcomings identified in Stage 1 of its peer review.
Both stages are desk-based and are coordinated by the Secretariat of the OECD's Forum on Tax Administration's (FTA) MAP Forum. In summary, Stage 1 consists of three steps:
(i) Obtaining inputs for the Stage 1 peer review
(ii) Drafting and approval of a Stage 1 peer review report
(iii) Publication of Stage 1 peer review reports
Input is provided through questionnaires completed by the assessed jurisdiction, peers (i.e., other members of the FTA MAP Forum) and taxpayers. Once the input has been gathered, the Secretariat prepares a draft Stage 1 peer review report on the assessed jurisdiction and sends the draft report to the assessed jurisdiction for its written comments. When a peer review report is finalized, it is sent for approval of the FTA MAP Forum and later to the OECD Committee on Fiscal Affairs, which then adopts the report for publication.
Following the peer review documents, the OECD released an assessment schedule covering the peer review process on Action 14 where it separated the assessed jurisdictions into 10 batches for review. To date, the OECD has released the following Stage 1 and Stage 2 peer review reports:
In November 2020, the OECD released a public consultation document on the review of the Action 14 minimum standard on dispute resolution.16 EY submitted a comment letter and participated in the public consultation meeting held on 1 February 2021.17
Tenth batch of peer review reports
On 16 February 2021, the OECD released the 10th batch of peer review reports relating to the implementation by Aruba, Bahrain, Barbados, Gibraltar, Greenland, Kazakhstan, Oman, Qatar, Saint Kitts and Nevis, Thailand, Trinidad and Tobago, UAE, and Vietnam. The reports are divided into four parts, namely:
(i) Preventing disputes
(ii) Availability and access to MAP
(iii) Resolution of MAP cases
(iv) Implementation of MAP agreements
Each of these parts address a different component of the minimum standard.
According to the OECD press release, the 13 reports of the 10th batch of jurisdictions include approximately 340 targeted recommendations that will be followed up on in Stage 2 of the peer review process. Overall, the reports conclude that most of the assessed jurisdictions meet almost all or the majority of the elements of the Action 14 minimum standard, with the exception of Kazakhstan and Vietnam which meet less than half of the elements of the Action 14 minimum standard.
All the assessed jurisdictions other than Kazakhstan, Qatar and Vietnam have no bilateral Advance Pricing Agreement (APA) program in place at present, and thus there were no specific APA elements to assess for those jurisdictions. Qatar has in place a bilateral APA program that in theory enables taxpayers to request roll-back of bilateral APAs. However, no such cases were requested during the period of review. Kazakhstan and Vietnam each have in place a bilateral APA program but those programs do not allow roll-backs of bilateral APAs and thus both jurisdictions do not meet the Action 14 minimum standard concerning the prevention of disputes.
Regarding availability and access to MAP, all assessed jurisdictions meet some of the requirements under the Action 14 minimum standard. None of the assessed jurisdictions has published guidance on the availability of MAP and how they apply this procedure in practice, with the exception of Thailand which has clear and comprehensive guidance on the availability of MAP and how it applies this procedure in practice under tax treaties.
In regard to the resolution of MAP cases, most of the assessed jurisdictions, except Aruba, Greenland, Kazakhstan, Qatar, Thailand and Vietnam, have not received any MAP requests during the three-year review period but they meet in principle all the requirements under the Action 14 minimum standard. Aruba and Greenland did not close any MAP cases during the period. Kazakhstan, Qatar, Thailand and Vietnam closed MAP cases on average within a 24-month timeframe during the assessed period, as required by the minimum standard.
Generally, in all assessed jurisdictions except for Gibraltar, the competent authority organization is adequate and the performance indicators used are appropriate to perform the MAP function. As Gibraltar had not yet received any MAP requests, it reported that at the time of review performance indicators have not yet been set for staff in charge of MAP. According to its peer review report, Greenland should ensure that its competent authority operates fully independently from the audit function of the tax authorities to resolve MAP cases in an effective and efficient manner. The same applies to Kazakhstan. Kazakhstan's tax administration personnel directly involved in the adjustment at issue may influence the resolution of MAP cases. Further, peer input suggested that Kazakhstan's competent authority does not have the authority to resolve MAP cases in accordance with the terms of the applicable tax treaty. Also, Vietnam's personnel of tax administrations directly involved in the adjustment at issue can fully participate in competent authority meetings, which bears the risk that the competent authority function is not performed entirely independent from the approval or direction of such personnel concerning the resolution of MAP cases during such meetings.
Further, for all the assessed jurisdictions, except Qatar, it was not yet possible to assess whether they meet the Action 14 minimum standard on the implementation of MAP agreements as there were not any MAP agreements reached that required implementation in 2016, 2017, 2018 or 2019. According to the report, Qatar does not meet the Action 14 minimum standard with respect to the implementation of MAP agreements as not all MAP agreements were implemented on a timely basis.
Finally, in order to be fully compliant with all four key areas of an effective dispute resolution mechanism under the Action 14 minimum standard, all the assessed jurisdictions, except Gibraltar, received recommendations to amend and update some of their tax treaties. Bahrain, Barbados, Kazakhstan, Oman, Qatar and the UAE have signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the MLI), through which some of their tax treaties will potentially be modified to fulfill the requirements under the Action 14 minimum standard. Where treaties will not be modified upon entry into force of the MLI, the assessed jurisdictions reported that in general they intend to update some or all of their tax treaties to be compliant with the requirements under the Action 14 minimum standard through bilateral negotiations. Greenland, Saint Kitts and Nevis, and Trinidad and Tobago reported that they have already started negotiations with their treaty partners. Gibraltar, Thailand, and Vietnam have indicated their intention to sign the MLI.
Best practice peer review reports
Each assessed jurisdiction may provide information and request feedback from peers on how it has adopted the 12 best practices contained in the Action 14 final report. If peers provide input with respect to a best practice, the input is reflected in the report.
None of the assessed jurisdictions included in the 10th batch requested that the OECD provide feedback concerning their adoption of the best practices so no best practice reports were prepared.
According to the FTA MAP Forum, the 13 jurisdictions assessed in the 10th batch of the MAP peer review process are already working to address deficiencies identified in their respective reports and are moving to Stage 2. In Stage 2 of the peer review process, a jurisdiction's efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored and the jurisdictions are expected to submit an update report to the FTA MAP Forum within one year of the OECD Committee on Fiscal Affairs' adoption of the respective Stage 1 peer review report.
The OECD has now published Stage 1 peer review reports for all batches (82 jurisdictions) and Stage 2 peer review reports for the first three batches. Fifty-seven members18 of the Inclusive Framework on BEPS have not been assessed yet against the terms of reference of the minimum standard (Stage 1) and their reviews have been deferred to a later stage.19
The OECD will continue to publish Stage 2 peer review reports in accordance with the Action 14 peer review assessment schedule. The next batch (fourth group) of the Stage 2 peer reviews is currently ongoing for the following jurisdictions: Australia, Ireland, Israel, Japan, Malta, Mexico, New Zealand, and Portugal.
Furthermore, as the OECD considers the comment submissions on the public consultation document released in November 2020, which were discussed in the virtual consultation session in February 2021, it is expected that the Inclusive Framework will release additional materials on Action 14 and further proposals for improvement over the coming months. It is likely that the Inclusive Framework will release an updated peer review document that reflects the 2020 review of the Action 14 minimum standard.
In a post-BEPS world, where multinational enterprises (MNEs) face significant scrutiny from tax authorities and the number of MAP cases continues to increase, the release of the peer review reports reflects the continued recognition of the importance to MNEs of tax certainty with respect to their cross-border transactions. The fact that tax authorities are subject to this type of review by their peers can be viewed by MNEs as a positive factor that should increase the likelihood of access to an effective and timely MAP process.
Furthermore, the peer review reports provide insights to taxpayers on the availability and effectiveness of MAP in the countries under review. As additional countries continue to be reviewed, the OECD has made clear that taxpayer input is welcome on an ongoing basis.
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2 See EY Global Tax Alert, OECD releases final reports on BEPS Action Plan, dated 6 October 2015.
3 See EY Global Tax Alert, OECD releases BEPS Action 14 on More Effective Dispute Resolution Mechanisms, Peer Review, dated 31 October 2016.
4 See EY Global Tax Alert, OECD releases first batch of peer review reports on Action 14, dated 27 September 2017.
5 See EY Global Tax Alert, OECD releases first batch of Stage 2 peer review reports on dispute resolution, dated 14 August 2019.
6 See EY Global Tax Alert, OECD releases second batch of peer review reports on Action 14, dated 15 December 2017.
7 See EY Global Tax Alert, OECD releases second batch of Stage 2 peer review reports on dispute resolution, dated 14 April 2020.
8 See EY Global Tax Alert, OECD releases third batch of peer review reports on Action 14, dated 14 March 2018.
9 See EY Global Tax Alert, OECD releases third batch of Stage 2 peer review reports on dispute resolution, dated 26 October 2020.
10 See EY Global Tax Alert, OECD released fourth batch of peer review reports on Action 14, dated 4 September 2018.
11 See EY Global Tax Alert, OECD releases fifth batch of peer review reports on BEPS Action 14, dated 18 February 2019.
12 See EY Global Tax Alert, OECD releases sixth batch of peer review reports on BEPS Action 14, dated 25 October 2019.
13 See EY Global Tax Alert, OECD releases seventh batch of peer review reports on BEPS Action 14, dated 3 December 2019.
14 See EY Global Tax Alert, OECD releases eighth batch of peer review reports on BEPS Action 14, dated 26 February 2020.
15 See EY Global Tax Alert, OECD releases ninth batch of peer review reports on BEPS Action 14 related to improving dispute resolution, dated 31 July 2020.
16 See EY Global Tax Alert, OECD releases Consultation Document on 2020 review of BEPS Action 14, dated 23 November 2020.
17 See EY Global Tax Alert, OECD holds public consultation on review of minimum standard on dispute resolution under BEPS Action 14, dated 3 February 2021.
18 Angola, Albania, Anguilla, Antigua and Barbuda, Armenia, Belarus, Belize, Benin, Bosnia and Herzegovina, Botswana, Burkina Faso, Cabo Verde, Cameroon, Congo, Cook Islands, Costa Rica, Côte d'Ivoire, Democratic Republic of Congo, Djibouti, Dominica, Dominican Republic, Egypt, Eswatini, Gabon, Georgia, Grenada, Haiti, Honduras, Jamaica, Jordan, Kenya, Liberia, Malaysia, Maldives, Mauritius, Mongolia, Montenegro, Montserrat, Namibia, Republic of North Macedonia, Nigeria, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Saint Lucia, Saint Vincent and the Grenadines, Samoa, Senegal, Seychelles, Sierra Leone, Sri Lanka, Ukraine, Uruguay, Turks and Caicos Islands, and Zambia.
19 At this moment, the OECD has not published an updated schedule for the deferred jurisdictions.